Iowa Banking Law Blog

The Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve are all active in crafting rules to implement the Dodd-Frank financial reforms. These rules, and the decisions the agencies make about the meaning of Dodd-Frank’s provisions, will have significant consequences for every financial institution in this country.

That’s why it is important to pay close attention to a case before the United States Supreme Court dealing with a completely different statute and agency. The Supreme Court has decided to review two cases in which the scope of federal agency authority is being challenged. This case could have broad ramifications for every agency and the power they wield—particularly the agencies tasked with regulating financial entities.

The Supreme Court has decided to review and consolidate two cases involving the Federal Communications Commission (“FCC”)—City of Arlington v. FCC and Cable, Telecommunications, and Technology Committee v. FCC. Both these cases arose as a result of difficulties in interpreting a statute giving the FCC authority over zoning and placement of wireless signal towers. The specific facts that led to the dispute are not important here. What is important to banks is the issue the United States Supreme Court has decided to review: Whether courts should defer to an agency’s own interpretation of the agency’s jurisdiction.

The courts have long been deferential to agency decision making. To a certain extent, this makes sense. Agencies are created for the purpose of regulating specific industries and groups. They are filled with people who are knowledgeable about specific subject areas. It would be pointless to create agencies to solve technical problems if the same agencies were subject to invasive review by judges, lawmakers, and attorneys whose backgrounds are much more general.

The Supreme Court must now decide whether this deference has gone too far. It makes sense to defer to an agency like the FCC on decisions regarding wireless services. However, it makes less sense to defer to the FCC on the meaning of a statute passed by Congress. The Supreme Court will have to decide whether judges and lawyers or the agencies get to decide the meaning of a statute.

The case, which will be argued before the Supreme Court on January 16, 2013, will have major implications for agency authority under Dodd-Frank. If the Supreme Court decides that the FCC has authority to decide the scope of its own jurisdiction, then agencies regulating banks will have even more authority to write regulations implementing Dodd-Frank. In effect, the agencies will be able to decide the meaning of various provisions of Dodd-Frank, and how much authority those provisions give the agencies. Those decisions will then face nearly insurmountable deference by the courts.

Alternatively, if the Supreme Court decides the FCC has overstepped the bounds of its authority, then we can expect significant litigation in the coming years over agency authority to implement statutes such as Dodd-Frank and the Affordable Care Act. Either way, bankers need to pay close attention to this case because it will indicate just how receptive the Supreme Court plans to be to challenges to agency authority.